Russia Considers New Proposal for Curbs on Wheat Shipments

Russia proposed new curbs on wheat shipments only 10 days after formally ending a previous levy, saying it needs to protect livestock farmers from rising feed costs.

The tax may apply from July 1, the start of the 2015-16 marketing season, if it’s approved by the Cabinet, Agriculture Ministry spokeswoman Yekaterina Popova said. It would be at least 1 ruble a metric ton and may be higher if contract prices rise above 11,000 rubles ($220) a ton.

Russian wheat prices should be limited to no more than that level in order to protect the country’s animal-breeding industry, Agriculture Minister Alexander Tkachev said May 15. Prices for next season’s crop rose 2.7 percent to $190 a ton in the week to May 18, according to data from Moscow-based grains carrier ZAO Rusagrotrans.

The proposed 11,000-ruble threshold is “a very low level to trigger a tax,” said Arkady Zlochevsky, president of the Russian Grain Union, a Moscow-based industry lobby group.

Prime Minister Dmitry Medvedev on May 15 ended the previous tax a month-and-a-half earlier than planned after the country’s inflation slowed, easing concern over soaring bread costs. Speculation that more wheat would enter the market after the tax was removed contributed to lower prices, helping to send contracts on the Chicago Board of Trade to an almost five-year low earlier this month.

Economic Crisis

The tax imposed on Feb. 1 was designed to rein in food prices after the ruble collapsed last year and the economy buckled under plunging oil prices and international sanctions over the conflict in Ukraine. It followed export duties in 2004 to limit shipments, a jump in the rates in 2008 to brake inflation and an outright ban in 2010, when drought caused crop failure, and again called into question the country’s reliability as a grains supplier.

Tkachev said May 15 that Russia might re-introduce measures to contain prices should they increase again in the domestic market. Export curbs would seek to ensure a balance between the needs of grain producers and livestock farmers, he said.

Every wheat shipment from Feb. 1 had incurred a tax of 15 percent, plus 7.50 euros ($8.23) a ton, causing monthly exports to fall by more than half. Originally the tax was intended to run through July 1.

The new tax may be set at an insignificant level if the ruble maintains its current level to the U.S. dollar, Vladimir Petrichenko, director general of Moscow-based market researcher ProZerno, said by phone Monday.

Currency Risk

“If the ruble gets cheaper, the tax would complicate matters for wheat exporters,” he said. “They would be exposed to that risk.”

Russia’s currency traded little changed at 50.1157 to the dollar in Moscow on Monday.

The ministry’s proposal, which was approved by the Economy Ministry, envisages a formula that divides a contract price in two and subtracts 5,500 rubles from the result, according to Popova. The remainder would be the tax, she said. The proposed formula differs from one put forward by the ministry earlier, as reported on May 7 by the Vedomosti newspaper.